Japan Petroleum Exploration: Tough To Go Long On Oil (Rating Downgrade)

2025-04-17 05:29:29 ET

Summary

• Japan Petroleum Exploration remains a low-EV investment.
• Newly online projects in E&P drove performance even with tougher price realization until the close of books.
• Management seems committed to lower cash balances, but payout ratio targets remain low, and project investments going online will be the source of earnings catalysts.
• The bigger issue is the unstable state of crude oil prices and the associated risks of any E&P stock in the short term, even a very undervalued one.

Japan Petroleum Exploration (JPTXF) ((JAPEX)) continues to be one of the interesting low-EV propositions on the Japanese market, despite significant gains in share price. While the EV is low, we want to reiterate from previous coverage that the fact remains that much of the low EV comes from the fact that Inpex ( IPXHY ) is partially owned by JAPEX as part of a strategic relationship between the engineering firm and JAPEX's E&P businesses. Due to the strategic relationship, it is therefore unlikely that the company will ever execute plans to dispose of the shares, which are clearly not being considered by markets in the JAPEX equity bridge. The fact that JAPEX continues to stick to a low payout ratio will make this an enduring factor in the equity story until the company feels that it has reached a point where reinvestments aren't as critical....

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